I am new to the mineral deal, but folks have told me not to sell? I have done the math, and when I am getting offered 15-30K plus grand to sell 20 acres or less? It makes sense to me? Am i looking at this wrong? I’d rather invest it, in something besides minerals??? Thanks for the help.
Jerald
Jerald,
Many factors are important when deciding to sell or not. If the offer is high enough and you can invest the money elsewhere for a solid return, and so long as you’ve compared the value of that option to the other option of keeping the minerals for royalty income, then you have your answer. Certain areas are also fading in interest because play boundaries are becoming more defined, so some who don’t sell now risk their minerals never being developed and never being able to sell them down the road. It really just depends on the exact situation.
You will never be offered more than someone thinks they can make in profit on your minerals. However, once you get into the $30,000 PER ACRE price you should take a closer look at the offers. You would still probably make that much if they drill multiple wells, but it would be spread out over several years. Depending on the area you might could actually get more per acre than $30,000. You should also consult your accountant when it comes to that kind of money. Find out what your capital gains tax would be for you.
As said location is key… Just remember it’s not unusual to get25k per acre… X 20 is a lot
Without knowing the location of his minerals, making a statement that it’s not “unusual” to get $25K per acre is rather ambitious. Similar making a statement that “once you hit $30,000 per acre” you should take a closer look. I think the hype needs to settle down a little, and everyone should remember the much praised “checkerboard” play doesn’t cover the entire county. Furthermore, the formations do not blanket the entire county either, and the depth changes drastically east to west. So while the enthusiasm is justified for some fortunate mineral owners that are located in places where you may get $30,000…or more, the reality is that is not ‘unusual’ rather the “exception” when taken in context with the larger picture.
Values in Grady, or any other county (Blaine, Canadian, Kingfisher) vary widely due to location, it is real estate after all. Not every property has a Park Avenue address.
As an example, south western Grady is not very attractive, other portions of Grady are attractive. Prior to deciding whether an offer is good, bad or indifferent, take the time to look into what’s going on in your SPECIFIC area. Broad generic assumptions will make the old saying about assuming become reality. Any buyer is buying based on their analysis and in an attempt to make a profit - hard to phantom anyone making an invest to intentionally lose money (yet some people seem to have the knack for over paying).
And I’m sure people will state - Oh but wait, continental said they plan to make 4X on their mineral acquisitions. Yes they might have, but they are armed with a drilling schedule, know where and when things are going to be developed and haven’t stated what the holding period for their invest will be. Additionally, they liquidated all their hedges because oil was never going to go down for long…so, maybe consider that public companies might embellish just a little…
In summary, depending on where in Grady, you could have an asset worth $25 or $30k/acre, or an asset worth $200-$300/acre. As I said, it all depends and values vary significantly.
As far as capital gains, if you look at the changes to the tax rules, cap gains rates very, and depend on ordinary income. I don’t think making a profit/capital gain should be a huge deterrent to doing a deal, and you maybe able to utilize a 1031 exchange to defer some of the cap gain.
the following map highlights some of the variance throughout Grady. The size of the bubble is based on the first 6 months BOE, as you can see there are portions of Grady that have no real HZ development as the basin plunges in depth. Additionally, as you move east, the formation become more shallow quickly. These changes in depth results in changes in production mix and well deliverability.
If you want me to take a quick look at a specific area, feel free to PM me the location, etc and I can give you some more granular details.
At $30,000/acre I think we are talking more like a decade at least would be more accurate time representation to describe when you might possibly see the same amount of money in royalty checks. Also, keep in mind when receiving royalties you are taxed at your normal tax bracket according to your income and when you sell you are taxed at the capital gains bracket you fall into based on your income so there are different post tax net amounts you have to take into account when you talk about the number of years worth of royalty checks it might take to get the same amount as a lump sum from a sale.
Time value of money, take a look. There is a lot you can do with a lump sum of money if you are wise with it…
Any relation to Kyle Brooks?
What is the checkerboard play? I know of springboard.
No not that I know of. Alot of Brooks around Blanchard and Minco and Tuttle.
you’re right, I used the wrong name…I was looking at a map early in the day that resembled a checkerboard, and the name stuck in my head. my apologies.
Thank you all for the help! I sold, and feel like it was a great transaction price! I was scolded by a few folks, who said never sell! I felt I used math and common sense in my decision. With my small acreage, I would have never recieved the amount I did off an oil or gas well with two sections tied together…I don’t know why some people are hung up on minerals. It’s the best business decision to sell in my opinion. (With the right price) Love it when my friends think they are oil tycoons off of 20-30 acres or less…at least I have money in the bank, than a guesstimate in the ground. Thanks again! Jerald
U have a good point there,Gerald
I have the number of a relly good landman who helped me out and gave me great price for some of my minerals in Grady County if you PM me. Sorry am new to the site I’m not sure how this works!
